Dialogue with Wootrade Business Director Audrey Caiwei: The Intersection of DeFi and CeFi
DeFi is even more a spirit of innovation and flexibility, with plenty of space to showcase talents."Wandian Chat" is an online live broadcast series launched by Blocklike, where we will periodically invite the most "eventful" exchanges, trending cryptocurrencies, and influential figures to share and discuss hot topics in the group.
Xiao Wan: As an important participant in the liquidity field of the industry, how do you view the impact of DeFi on market liquidity in this wave of trends brought by DeFi?
Cai Wei: The two major types of trading venues for future virtual currencies are: one is centralized platforms that comply with regulations, and the other is Dex, which continues the spirit of blockchain. The prosperous growth of DeFi has attracted more traffic and funds, such as the AMM automated market maker of Uniswap, which allows non-professional trading teams to participate as liquidity providers and lowers the threshold for creating new assets, thereby increasing overall market liquidity.
The rise of positive cycles has increased on-chain liquidity, with many users attracted by high annualized returns choosing DEX for safer and more transparent trading. In such a market, our understanding of the DeFi field is deepening, and we are seeking technical solutions to various pain points of AMM, such as low capital utilization, high costs for placing and canceling orders on-chain, and slippage leading to price discrepancies.
Wootrade Network, as a trading infrastructure provider for the entire market, first provides liquidity for trading venues. By utilizing its own trading capabilities, it offers quotes to Dex while also bringing Dex liquidity into the CeFi liquidity market. Dodo's PMM proactive market making introduces professional market makers to provide the best quoted liquidity pools for DeFi, offering better prices for the entire market while using only a few hundred thousand dollars in inventory.
DeFi is more of a spirit of innovation and flexibility, with plenty of room to showcase talents. Currently, many users who were originally on centralized exchanges have come to DeFi, which somewhat affects the existing centralized market. However, in the trend of the past year, we have learned that traditional financial institutions are also eager to try their hand in the cryptocurrency market.
(Of course, some trading teams we are familiar with have long been involved in trading currencies.) We believe that more traditional traders will enter the cryptocurrency space, and Wootrade Network's role is to build a bridge between CeFi and DeFi, providing reliable and trustworthy infrastructure services for traders.
Xiao Wan: Based on your observations of this industry, what are the characteristics of liquidity in top exchanges, second and third-tier exchanges, and emerging trading platforms? What are the different trading needs of customers on different platforms?
Cai Wei: Liquidity can also exhibit a "Matthew effect," meaning it tends to concentrate towards the top, and emerging exchanges may not have as many visible opportunities, leading many to be overlooked. However, new trading platforms in the DeFi space will continuously introduce more innovations and market-making algorithms, which will be very beneficial for the future development of the entire industry.
Customer trading needs are actually based on user profiles. For example, Binance has a majority of overseas users, while Huobi and OKex have a majority of domestic users, which reflects different user backgrounds.
The liquidity of different exchanges is determined by user profiles, with platform stability being a major demand for all users. For professional quantitative traders, their needs include deeper order books, faster trading speeds, smaller spreads, and slippage.
For more manual traders, they currently need more professional trading interfaces; for retail investors, they may need grid trading and better financial products. This diversity is actually very good, and we look forward to seeing more sparks brought by different exchanges.
Xiao Wan: Wootrade has introduced the concept of "dark pools" from traditional financial market making into the crypto community. Could you briefly explain how this differs from traditional financial market dark pools? What role does it play in the crypto community?
Cai Wei: First, let me introduce the concept of dark pools. As the name suggests, it refers to over-the-counter trading that is distinct from public exchanges, and it has been widely used in the traditional US stock market.
It primarily addresses the trading demands of large clients and institutions, allowing for large buy and sell orders while keeping traders anonymous and not impacting the market. Traditional US stock dark pools are mainly operated by professional quantitative institutions and brokers, such as Citadel and Virtu, which are top-tier quantitative funds in the world.
Wootrade is quite similar in this regard; we are incubated by Kronos, which is now one of the top ten market makers in the world, with daily trading volumes of $10-15 billion. However, the concept of dark pools is relatively closed and far from ordinary users. We prefer to call ourselves a liquidity provision platform, and with the logic of tokens, it also means being more open. Not only can B-end clients use our services, but ordinary investors can also participate in our ecosystem through tokens.
Xiao Wan: In the many subfields of DeFi and CeFi, the aggregation trading sector has always been a track that many people are paying attention to, aiming to aggregate more liquidity and improve efficiency. What overlaps does the Wootrade platform have with aggregation trading? What are the differences?
Cai Wei: The CeFi trading aggregation sector essentially links the liquidity of three major exchanges through technology, while DeFi aggregates larger trading volumes of Dex.
Wootrade Network's biggest barriers lie in two points:
- The quantitative trading team Kronos Research that incubated Wootrade has a daily trading volume of billions of dollars. Compared to using trading aggregation platforms, the support of market makers allows Wootrade to not only have better depth but also offer zero-fee trading, or even negative fees.
- We are not limited to the centralized domain; Woo Labs is also laying out DeFi ecological projects. We will analyze and layout different tracks of the entire ecosystem, like a "laboratory plan" to invest in various potential projects to inject liquidity while assisting the development of the entire Wootrade network ecosystem. We can see our latest launched Zealous Rhino node plan, which currently involves eight institutions including Hoo, MXC, Gate.io, Bitmart, Bitmax, BitZ, and Tongzhou Capital.
Xiao Wan: From the perspective of fund liquidity trends, many traditional institutions' funds are entering this market. So how can liquidity providers better integrate market liquidity and introduce new liquidity into this market?
Cai Wei: Our Wootrade network is not just a platform; it has one of its products, serving as an exchange behind the exchange. Therefore, the characteristic of this platform is that it can provide negative taker fees, as the entire market can basically provide negative trading fees, usually referred to as maker fees. However, we can do the opposite; we can offer zero maker fees and negative taker fees, which is quite an attraction.
The liquidity and depth within our Wootrade platform can actually be compared to what is known as HBO. You can refer to it; I will send this link for you to check our depth and liquidity, as this is actually for B-end users, or API traders.
Xiao Wan: Based on Wootrade's experience, what role do the next-generation liquidity provider platforms play in the industry? Which institutions or platforms do they often collaborate with more?
Cai Wei: Currently, many investment institutions are entering the market, but the existing CeFi liquidity is still relatively dispersed, with no single platform focusing well on infrastructure.
Therefore, Wootrade aims to create better trading infrastructure and collaborate with more compliant traditional institutions. We also consider compliance to be a very important standard. Recently, traditional funds entering the market are also looking for suitable trading cooperation platforms, and as long as it is related to traditional financial businesses, Wootrade can provide services and establish cooperative angles, such as dark pools, liquidity market making, custody, etc.
We provide liquidity to various DEXs, and at the same time, liquidity will also be brought back to CeFi. So Wootrade will serve as trading infrastructure, catering to both DeFi and CeFi, introducing liquidity to the entire market. For example, we will cooperate with the exchange DODO, utilizing their PMM algorithm combined with our order book to provide users with top centralized exchange quotes and depth. After deployment on the BSC chain, we will also deploy on public chains like Arbitrum and Polkadot.
We believe this cooperation will better integrate dispersed liquidity. In the future, we will collaborate more with these liquidity provider platforms, playing an intermediary role to bring Wootrade liquidity onto the chain. From our perspective, liquidity provider platforms will become the underlying infrastructure of the trading market, whether for spot, derivatives, or more complex financial products, all of which rely on liquidity support.
From a product logic perspective, exchanges, brokers, lending platforms, OTC platforms, wallets, trading institutions, etc., will all become part of the Wootrade Network ecosystem.
Xiao Wan: What is the token economic model of Wootrade? I believe most of the friends from institutions here would also like to know how Wootrade plans to gain more order flow from this market?
Cai Wei: Wootrade network is committed to creating a positive cycle economic model that balances supply and demand. Simply put, Wootrade attracts institutions to trade and stake through negative taker trading incentives, releasing liquidity; on the other hand, Wootrade gains trading profits from the order flow delivered by these cooperative institutions and platforms, and uses the profits for monthly buybacks and destruction in the secondary market, forming a deflationary economic model.
Under the mechanism we set, the amount destroyed will be slightly greater than the amount released, creating a virtuous cycle where demand exceeds supply. From Wootrade itself, it has the support of market makers to provide liquidity, which is the most attractive aspect for trading platforms and institutions.
Additionally, our zero fees and negative takers also play an incentivizing role. From a market expansion perspective, Wootrade is very open and innovative. We are currently negotiating cooperation with several emerging but already scaled DeFi projects to jointly explore new liquidity cooperation methods, bringing DeFi order flow into Wootrade.
Wootrade is also committed to creating a brand new trading track, combining different user profiles to provide services for investors, traders, project parties, and retail investors.
WOOFI is our layout in DeFi, while WOO X is designed for professional traders in interface version. In the future, we will also provide financial products and further cooperate with B-end and retail users. The goal is to integrate services for users across the entire industry and gain more order flow.
Xiao Wan: Recently, Wootrade has been very active in the community. Are there any new developments or plans you can share with our institutional friends?
Cai Wei: Since its launch in early 2020, WOOTRADE has been operating steadily for a year and successfully upgraded to version 2.0 in July 2020. Business development has primarily focused on exchanges, and after the upgrade, we have the capability to connect with over 200 exchanges and institutional clients.
In the new version, system scalability has significantly improved, and the Kronos Research order flow trading strategy will be launched to create an internal liquidity pool. We have already launched leveraged trading features, which will greatly enhance users' capital utilization and facilitate larger transactions on our platform.
In addition, we plan to open contract trading dark pools by the end of this year, which will also increase the variety of our clients. Currently, the daily CeFi trading volume can already be seen on the Wootrade official website.
We will gradually disclose our latest cooperation progress to everyone. After connecting to WOOTRADE, exchange clients have seen their trading volume increase by 3.5 times, and trading institutions using dark pools for hedging have saved a significant amount in fees. We expect that with the launch of new features, WOOTRADE's trading volume will experience exponential growth.
There are many new products and features, and the test version of Woo X will be released at the end of the month. Interested friends can also participate.
Xiao Wan: From the perspective of liquidity changes, how do you view the development trend of DeFi in 2021? What kind of market situation are we about to face next?
Cai Wei: 2020 was undoubtedly a year of rapid development for DeFi, and judging by the momentum at the beginning of the year, 2021 will continue this trend. Additionally, while DeFi liquidity is growing, CeFi is not overshadowed; we see a lot of capital from the traditional world flowing into cryptocurrencies, with Coinbase, Grayscale, and other compliant centralized platforms being the first stops. We can be sure that whether it's CeFi or DeFi, the cryptocurrency market as a whole will continue to expand.
New liquidity will enter through CeFi platforms, while existing liquidity will gradually shift towards DeFi and other native products, giving rise to more types of financial products, which will also accelerate the process of traditional funds entering DeFi. Any new track, after rapid development in the early stages, will invest more energy and time in refining details in the future, which is essential for the long-term development of the entire market.
For me, 2020 was a year of "breaking" patterns. Whether it's the global pandemic, the rise in Bitcoin prices, or the increasingly popular NFTs, we can see that outdated thinking is being discarded, and new things are being established.
NFTs serve as a great example, proving that art is moving from the physical to the more virtual, as are currencies and games; everything has a traceable path. For the overall development of humanity, this can be seen as a spiritual uplift—decentralization, and DeFi is indeed a manifestation of this spirit.
No matter how trends may change in the future, we need to look deeper into any new thing, seeking where our connections with it exist, so that we can plan ahead.
